March copper futures traded at $4.334 per pound on Thursday, down from Wednesday’s high of $4.6675.
The World Bureau of Metal Statistics on Wednesday reported a deficit in global copper supplies for the first 11 months of 2010. That compares to a surplus of 276,000 for the same period in 2009, however arguably this was during the fallout of the global financial crisis, when demand sharply slumped. The price of copper has accelerated to new highs on anticipation that demand from China will lead to further shortfalls in global supply. However, China’s robust economic growth is becoming its own curse, as investors interpret stronger growth as a signal that officials will need to apply the economic breaks to prevent overheating. This led to a further pull-back in copper prices on Thursday, after China reported GDP growth of 9.8% in the fourth quarter of 2010. While risk sentiment does play a part in short-term movements in copper prices, ultimately the metal is a play on growth, as it is used extensively in construction and electrical goods.
Europe’s biggest copper smelter, Aurubis, foresees heightened copper demand from China as they push to upgrade the rural power grid. Therefore if China continues to expand near its current pace, and the US recovery begins to take hold, then the price of copper will rise further, on expectations of stronger global demand. Investors should be wary, however, as copper is a very volatile commodity. Sharp pull-backs in the price are not uncommon in response to adverse economic data. Policy tightening in China can trigger a sell-off, in addition to general risk appetite waning in the marketplace. These pull-backs may present a good buying opportunity for copper, as prices tend to recover quickly and resume their general trend higher. Based on copper seasonality, prices may continue to rise steadily until the second quarter, before facing a correction heading into summer.